Use dormant capital to generate additional yield

This strategy won’t be available straight away, but it can be devised such that it takes part of the unused borrowing power to generate additional yield. As we mentioned previously, the nature of DeFi lending is over-collateralized and is often blamed for its capital inefficiency because borrowers have to pledge more value than what they can borrow. Many borrowers choose a quite conservative loan-to-value level so that they are protected from sudden market drops. This amplifies capital inefficiency as a big chunk of the collateral stays unproductive.

We can think of a strategy in which the user defines a safe threshold and as far as the loan-to-value stays above it, we deploy the excess capital in low-risk farms. This capital could be easily withdrawn in case of market change and brought back to back up the original position.

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